The way we are financing and delivering healthcare in America is not working and we need transformational change. Everything we have done in the past to make incremental changes to the market has failed to control costs and failed to improve quality care. We have made significant errors. Can we learn from those errors?

All previous reform attempts have expanded the bureaucracy, increased regulation and price controls, and have resulted in more stringent third party rationing of the patients. Our dysfunctional market can be characterized by market and information failures, inefficient moral hazard issues, distorted incentives, inflated insurance premium, hospital and pharmaceutical pricing, and cost shifting.

In large part the dysfunctional market has been caused by protectionist government policies of the large insurance, pharmaceutical, unions and hospital corporations that have led to power imbalances that have led to more of an emphasis on maximizing profit than on an efficient, affordable product for the consumer. In spite of their wealth and power, these corporations have failed to develop solutions to the reversible inefficiencies and perverse incentives that plagues the finance and delivery of American health care. They have done nothing to alleviate the uncertainty due to asymmetric information that causes market dysfunction. In fact they lobby for laws to perpetuate these inefficiencies and bad incentives. There are costly, inefficient and opaque administrative and regulatory procedures and central organizational overgrowth, with un-necessary and in-efficient bureaucratic micro-management of physicians as well.

At over $2 trillion per year, the U.S. health-care system suffers much more from inefficiency than from lack of funds. The system wastes money on unnecessary premium care workups, and inappropriate use of expensive technology. We also use medicines and technologies that cost a lot for little or no marginal health benefit. The current paradigm also provides strong financial incentives to preserve such inefficiency.

Is health a right for all Americans? This is a political question to which there is no answer on which we can build a consensus. Those who say that health care is a right are trying to establish justification for a single- payer, government owned and run health care system of universal care. Those who say that health care is a responsibility also seek justification for rejecting the single payer universal care government system. All of the philosophical argument on both sides of the argument really doesn’t help us reach a consensus either. We are simply divided on this subject and always will be. The argument has been going on for one hundred years now. During this time our current non-system evolved haphazardly with all of its price drivers, perverse incentives and inefficiency. And yet this question remains and prevents us from moving forward with a plan which will solve our problems. A more appropriate question would be how can we lower costs and create a more efficient and cost effective system right now in our current paradigm. Once instituted, a free market will completely change the hostile climate that now exists to innovation and job producing activity. There is no way to tell what that future holds. The best we can do is to effect economic reforms which will create a more efficient and cost effective system within the current paradigm and then shift to a free market to change the paradigm.

The fact of the matter is that all Americans do get health care now, although there are great disparities in this care. The patient's without insurance show up in hospital emergency rooms to receive care. But there are problems with the quality, equity and price of that care. This is the most expensive venue. Hospitals cost shift all un-reimbursed care from the un-insured, those with Medicaid and Medicare, BCBS and commercial insurance that all pay under-market market value payments to doctors and hospitals, to the tax payer and everyone else who is insured. This helps drive up the premium price for insurance. There is something on which everyone can agree----- that all Americans, once they have paid for health insurance or when they do get care, should get access to appropriate and equitable medical care.

Fully one-third of the population lacks health insurance for at least part of the year. Of the 44 million who are completely uninsured, 78.8% work full or part-time. The lack of available care is especially acute for those living in rural areas and for minorities. And the quality of health care for all but the wealthiest patients has declined dramatically, with more people dying each year from avoidable medical mistakes than from car accidents.[1] Add to these problems the lack of services for Americans in rural areas, discrimination in health care provision and outcomes between whites and non-white minorities, and pharmaceutical and insurance costs that are spiraling out of control, and it is clear the U.S. health care system is in profound crisis.

How is this possible when the United States spends more per person on health care than any other industrialized country in the world?[2] The health care crisis in this country is more complex than questions of rising costs or lack of insurance, and as important as those elements may be, any successful reform of the health care system must take a broader approach to understanding the problems.

With a mercantile, government-industrial system that that has the power to value massive profits over people, it is no surprise that health care costs continue to spiral out of control for ordinary Americans even as HMOs and pharmaceutical companies accumulate record-breaking profits. Only a new approach that shifts our current paradigm of finance and delivery can address the magnitude of the current crisis.

The current system has become bewilderingly complex, making it more difficult than ever for individuals to access health care. With federal, state, and private funding sources, hundreds of individual insurance plans to choose from, and different referral procedures for different types of delivery systems, obtaining basic care has become a bureaucratic nightmare. Despite the vast array of putative “choices”, the U.S. health care system frequently delivers inadequate and poor quality health care, and imposes wasteful expenditures on administrative and litigation costs. Policymakers must streamline and simplify the system to make it more understandable and accessible.

The main problem is that we are paying in the most expensive and inefficient way for this inadequate and poor quality care. We need to reduce costs, remove the inefficiency, and improve the quality of all health care.

Health care in a changed paradigm must be accessible and affordable to all Americans, irrespective of race, gender, religion, geography, and income. The increasing costs of providing services combined with the waste and inefficiency apparent in the current system result in fewer and fewer people having access to basic health care. Policymakers must ask at the outset how well a given plan will work to cover all people in this country. How can we provide for access for all Americans and yet pay in the most efficient and least expensive way?

Good health care will always be expensive because all health care resources are limited and demand will always be high. But although health care is inherently expensive, it doesn't make good sense to pay more for it than we need to. And yet that is exactly what we are doing with our current financing and delivery system. Because of the inefficiencies and cost shifting now, we are paying for health care in the most expensive way possible. Many others have recommended solutions to this problem. Taxing everyone and redistributing the wealth from a top down centrally controlled highly regulated bureaucracy has failed. We need a new concept. I disagree that full subsidy of health care is not the best way to help the elderly, the poor and those not insurable because of chronic illness or pre-existing conditions. However, we currently use a subsidy system. A free market will change that. Until that occurs we need to exist in the current paradigm. Economic theory suggests that it is probably better to give the money regardless of its source government or private, as a transfer payment to low income people that would have been spent on a health care program and let them decide which additional goods and services they need since the money has more utility than the program. It also eliminates the moral hazard issue because they are spending money that they perceive is theirs and not someone else. (See the RAND Health Study).

It is ultimately important that every American have sufficient purchasing power in health care so they will have means to pay a reasonable price for their non-discretionary health care. This is the least expensive and most efficient way to achieve universal access and equitable care. Currently we are subsidizing the full care of the uninsured at the highest rate, the elderly with Medicare, the poor with Medicaid and everyone else with private insurance through cost shifting, and paying for it in the most expensive and inefficient way. With sufficient purchasing power we can eliminate all cost shifting while assuring that every health care provider is paid at market value rather than under market value as in the current system and all other proposals for reform. Sufficient purchasing power is also an important part of eliminating the disparity in the delivery of health care that currently exists. With the savings from making our system more efficient, we can generate funds to be used for subsidizing the insurance premiums and not the full cost of care of the poor uninsured, and those with chronic illness making this proposal budget neutral.

Which direction should we go? Many tell us we need a government run single payer system. Others tell us we need a market based system. As we have seen there are many problems with either choice. Many of these problems derive directly from third party payment and procedure driven and reimbursed health care and market distortions caused by government policies that protect the corporations at the expense of the individual American. If we elect to reform health care through a single payer system, the lobby power of the corporations and the bureaucratic growth will lead to more price controls and rationing. One of the problems responsible for our inability to solve this problem is that we have looked exclusively to political solutions in the past to give us the answers. It is the nature of political solutions that they often violate economic principles and introduce distortions in the market. This because the political card always trumps the economic card and politicians have degenerated to the point where they use smoke and mirrors to manipulate the publics perception that there political agenda that they have substituted for an economic plan will work. This is what happened repeatedly during all of the health care market reforms during the 20th century. A large part of our future reforming of health care will be economic. Of course there will need to develop non-market political strategies to implement the economic plan and those solutions for those problems not amenable to market solutions.

Our aim is to seek to correct the many problems of our current health care finance and delivery sector that leads to inefficiency, bad incentives, market dysfunction and out of control cost growth. Rather than start with a particular political agenda or ideology, we have tried to transcend partisan politics, applying basic economic and public policy principles in a reasoned way to solve the problem.

It is a fact that a market economy is the most efficient system for producing consumer goods and services. Markets solve problems, bureaucracies do not. No one knowledgeable about economic systems will deny that. This fact can not be ignored because health care reform represents re-organizing one seventh of the U.S. economy. However we have seen how the lack of a level playing field, a proper model for competition and perverse incentives with no checks and balances can lead to corporate monopolistic power that exploits the vulnerable to make huge profits with which they lobby our government for more money and power. This will always lead to market failure. We need to avoid repeating this mistake. Medicare and Medicaid are non-profit single payer systems. They are just as dysfunctional as our private insurance for profit system is. The reason is they both suffer from the same causes. Moving to a government controlled single payer system will not only not fix the system but will also exacerbate the dysfunction.

The most important target for our reform effort is U.S. health sector inefficiency. At two trillion dollars last year, America spends twice the rich-country average, equivalent to $6,280 for every American each year. Yet our outcomes are no better than those in other countries. Improving efficiency will reduce costs making insurance more accessible and affordable to all Americans.

The competitive market is the best way to address cost and efficiency. This conclusion is based on many assumptions about the market. However, there is no one list of assumptions that has been generally agreed on by economists. [3] Furthermore, no one has yet to offer a proper model of how to introduce competition in the health care market. The fact that many economists and policy types haven’t figured out how to make the market work in health care doesn’t mean it can’t be done. However, does economic theory support the belief that competition in health services leads to superior social outcomes? There are two areas where the competitive market may not lead to superior social outcomes. Ensuring that free and open markets operate fairly and that competition is based on price and quality rather than on the selection of the healthiest patients, and making sure that disadvantaged Americans can participate in the market, that is, how will we subsidize the poor and chronically ill.

I prefer to create a new approach that maximizes the good that a free enterprise market system can do while at the same time does justice to the economically disadvantaged. In order to do this we must correct those conditions on which the assumptions are based that make a competitive market and market forces give us the best economic system for health care finance and delivery. We must also address all important issues not answered by market forces and design reform strategies with empirical answers that will not have disastrous unforeseen consequences. We are not anti-government. We are not anti private sector corporation. We do, however, oppose the power imbalance that has in large part caused market dysfunction. We admit that it is not possible to make the market work in a highly regulated third party payment procedure driven system with powerful stakeholders causing continuing market dysfunction. That is why we propose to replace this system with a lump sum payment from insurance into a reformed health account from which the patient can pay for all of his medical expenses directly, giving the patient true transparency, portability and control over all of his health care dollar. We must also redesign the market institution in order to create a level playing field with rules of engagement to maintain it.

Designing a new market system should be based on Adam Smith’s traditional, economic model. This model is based on his concept of self interest and the “invisible hand” theory of functional markets. Self interest doesn’t mean a selfishness that produces goods and services that don’t meet anyone’s needs, a selfishness designed to only generate and maximize profits. Rather, self interest in Adam Smith’s own words means that the individual is following his own private happiness and interest by exercising the habits of economy, industry, discretion, attention to detail, and application of thought. In other words he is doing what he likes to do and being productive at it. Smith tells us that when one follows self interest instead of being careless and inefficient it benefits others in the market as well, the end product being the generation of wealth for everyone via the invisible hand. This is the basis of the win-win doctrine of free market economy.

In and of itself profit is not a bad thing. Profit is the engine that makes the market work. The problem occurs when power imbalances develop and some market participants harm the other market participants; when the dominant participant generate profits by exploiting the other participants who are rationed and price controlled. This power imbalance leads to market dysfunction and drives health care costs up.

The current private market in health care resembles a mercantile system more than a market system. Consequently, just adding competition to the current system will not generate healthy market forces, efficiency or cost control. There are many reform steps necessary before we can have a free market operating on and generating market functional market forces. Even more important, these intermediate reform steps need to be done in the correct order or it will fail. For example, we need to reform the individual market and risk spreading strategies first before we can change the tax incentives that will shift people from the large group market to the individual insurance market.

Mercantilists view the economic system as a zero-sum game, in which any gain by one party requires a loss by another. Thus any system of policies that benefit one group would by definition harm the other, and there is no possibility of economics being used to maximize the “commonwealth”, or common good. Health care should not be a mercantile system and should never be a zero sum game. It is incumbent on us to design and establish a market institution for American Health Care that is win-win and the end result is the common good.

A distinguished economic theorist, Kenneth Arrow, is credited with establishing the field of healthcare economics. He was asked by the Ford Foundation to describe the economic properties of the medical services industry. Arrow was the first to show how behaviors in medical markets could be understood within the context of standard economic models of competition. In his seminal1963 paper[4], “Uncertainty and the Welfare Economics of Medical Care”, he concluded that health care differs from the conditions set for standard welfare economics because two types of markets were undeveloped in health care. The first type was markets for the risk inherent in the uncertainty in the incidence of disease and the efficacy in treatment. The second type was markets for information assumed to be accessible for all participants in perfectly competitive markets. Arrow described information asymmetries between the doctor and patient which made it difficult for the patient verify the quality of medical care.

The main theme of Arrow’s article was that non-market institutions either public or private, tend to arise to deal with the special features of markets in medical services or medical insurance that cannot be handled efficiently in conventional markets. Inefficiency used in this context means more than waste or sloth. It means that mutual gains that could have been achieved were not achieved. Arrow pointed out that the most important of these non-market forces are the professionalism of physicians who make the market work in the best interest of the patient in spite of the asymmetric information and uncertainty issues. Arrow believed professional norms would guarantee appropriate use of services. Arrow used an economic role for non- market institutions in an effort to deal with the limitations of markets in health care that were causing market failure.

Ever since Arrow described the utility of physician professionalism, the micro-management and regulatory burden has expanded which has systematically eliminated professionalism. However, the market failure that presumably justified the regulation has not only gotten worse but has become intractable.

The answer therefore, is not more central control and credentialing of physicians. It is not working. The answer is correcting the incentives that drive market behavior. Most of the perverse incentives derive from third party payment , procedure driven health care delivery and under market value payment to providers. (physicians and hospitals)

Why did the economists miss this? First, the health care system was much different in 1963 and second, Kenneth Arrow had no experience practicing medicine to see how market principles should be applied. Arrow tried to approximate the health care market to existing economic models. The system that we have had over the past 45 years has failed. Market based health care finance and delivery within a proper economic model is the only way it could have worked.

How is the market regulated? Does free market mean that every participant can do as he pleases and run wild being solely motivated by greed and profit maximization? How do we reconcile the idea of a free market with the concept of “market design”? At a practical level, I reconcile them by acknowledging that we need to actively design a level playing field because it won’t develop spontaneously when we are dealing with markets or industries that have historically had a significant amount of regulation, government control and powerful and wealthy stakeholder involvement with considerable lobby power such as we have in healthcare. “Therefore the movement from heavily regulated to thriving free market process is very unlikely to be spontaneous. It’s also unlikely to be a healthy transition, because embedded regulation creates embedded special interests who would like to see the regulation persist and will resist change. If the transition process is too “laissez-faire”, the embedded special interests are likely to succeed at manipulating the transition to their advantage” [5].

The laissez-faire doctrine associated with the 18th century Physiocrats and 20th Century libertarian classical economic theory was intended to eliminate government micromanagement, protectionist interference and the resulting distortions. These distortions, created by government protectionist policy, of the large corporations and their wealth acquisition through corporate welfare, subsidies, rent seeking behavior, monopolies and patents, caused our present market dysfunction.

Hayek writes in Law, Legislation, and Liberty that market processes for the mutually beneficial, voluntary exchange of goods and services always occurs within a context of law, of legal institutions, whether formal, informal or a combination of both. [6]

“Many of what we think of as the most free and most capitalist of our market institutions, such as financial exchanges, involve elaborate contracts and laws enforcing those contracts. This legal context determines the rules of engagement by which we exchange; the context, the incentives and checks and balances and the agreed upon rules form the market institution. The quality of that institution and its variation across places or across time can affect how much exchange actually occurs, and how much net benefit is created through exchange. Even in free markets, the market institution is carefully designed, although in most spontaneous markets the design process is very subtle, building upon centuries of legal precedent and experience, so it doesn’t look like it’s highly designed or deliberate. The market institution is created by trial and error to create efficiency. This process cannot be duplicated by government protectionist policy of wealthy and powerful corporations who are only concerned with preserving their wealth and power by exploiting the consumer as it is done in the mercantile systems”[7].

The problem is that in markets coming out of severe over-regulation with powerful entrenched special interests or in markets that have never existed before, the market institution has to be designed in less-than-spontaneous circumstances. That’s the hard part, because it introduces a political dimension to the design of market institutions that is not present in more spontaneous situations, because of the special interests in the status quo and special interests in the future setup, all trying to influence the design of the rules in the market institution to preserve current regulation that will perpetuate their power imbalance. [8]

In our design of the market institution we must strive to emulate the design style of the spontaneous markets rather than the superficial and ineffective regulatory efforts of the bureaucracy. My insurance reforms and incentives with checks and balances provide that design but obviate the high transaction and legal costs. The design must come from the collaborative effort of the participants in the health care market since they are knowledgeable about their business and know how to set up the incentives and checks and balances.

We must establish and maintain a level playing field in applying market principles to health care. Insurance companies need to compete on the basis of price and not on avoiding necessary care. They need to provide transparency to their potential customer in the form of value per premium dollar information. Our goal is to generate profit as a function of providing efficient, appropriate goods and services. This will give us a functional market that is win-win for all market participants.

Government has significant roles to play in market based Health care. Interfering with a participant’s business is not one of them. That will only cause market distortions that will lead to market failure.

More appropriate roles are:

o Subsidizing the premiums of the poor, the disabled, high risk individuals and those with chronic illness.

o Subsidizing a product or procedure that constitutes a public good, that has been determined to provide a substantial gain to society, that are either under-produced or not produced because a firm cannot recover its cost.

o Government contributions where positive and negative externalities exist. Examples would be immunizations or cigarette smoking.

o Oversight of market functioning to make sure every participant is playing by the rules of engagement.

Other market deficiencies that currently exist can be corrected by either new tactics, strategies or creating different incentives. Our ability to achieve this is strictly a function of the way we design the market to perform. Unfortunately, no one currently in American health care is following his self interest in the way Adam Smith recommended. We have been victimized by our domestic mercantile system which is destroying medical care in this country.

We must resist the temptation to resort to bureaucratically, micro-managed, regulation. Rather, our job should be to create incentives with checks and balances to get individuals to behave the way they were properly trained to behave( using Smith’s definition of self interest). By so doing they will be able to provide a needed service that will turn out to be in the best interest of the consumer and lead to a functional market. These incentives with checks and balances are the correct way to deal with abuse of market power where a single buyer or seller can exert significant influence over prices or output. Abuse of market power can also be reduced by stricter use of our antitrust regulations to stop the monopolistic market power that currently exists. Many times what appears to be a benevolent policy gesture may backfire and lead to market dysfunction because although it is well meaning, it is misguided. This happened with third party payment and procedure driven medicine. Political agendas often create economic distortions when they violate basic economic principle. Unfortunately, a lot of our misguided public policy in health care finance and delivery has done this.

Creating a centrally controlled command economy as a single payer system or expanding current government programs is not the answer. A single payer system is even more inefficient compared with our current dysfunctional system. However, we can design the same efficiencies in a market system which also gives us the added advantage of market competition, and the market’s ability to solve problems which doesn’t exist in the bureaucratic single payer system. Single payer system programs are characterized by costly, inefficient and opaque administrative and regulatory procedures with central organizational overgrowth, and with un-necessary, expensive and in-efficient micro-management of physicians as well. These health reform plans will fail if we don’t address our current market failures and redesign health care financing, incentives and checks and balances. The single payer system in current government run health insurance (Medicare and Medicaid) suffers from the same out of control cost growth that we have in commercial insurance. Imposing the so called play or pay schemes with either individual or employer mandates forcing people to purchase insurance in this perverse, expensive and distorted market is also wrong and will never work.

In his 1992 book, Responsible National Health Insurance , health economist Mark Pauly stated that a mandate to purchase health insurance would be necessary to achieve universal access to insurance.[9] I disagree. A new mandate to purchase health insurance, for either the individual or the employer, will cause a significant increase in taxes and costs that would not be politically viable, just as it has not been throughout the twentieth century. Furthermore, we must not force people to buy a highly overpriced and deficient product that currently exists in American health insurance.

Employer mandates to purchase health insurance will just burden the business sector more than employer based health insurance does already. Many businesses will either go out of business or go to other countries such as Ireland that are more favorable to business with resulting loss of jobs here in the U.S.

Individual mandates will require increasing subsidies to all Americans as the unchecked inefficiency of poor design and perverse incentives associated with our current insurance design drives up costs. Mandating people to purchase un-reformed health insurance with its current inflated premium prices is perverse and unworkable.

I believe that we can achieve universal insurance access in a market based system without new mandates. I propose that we use a current mandate for Worker’s Comp insurance instead that also has other advantages in providing a source of funding for the working poor and will ensure universal insurance access to necessary care for all employees.

Many current problems associated with Worker’s Comp insurance can be solved by using the Worker’s comp premium as a defined contribution into all employee’s reformed health asset savings account. Once the employee accepts the funding they are obligated under current law to purchase a Worker’s comp policy or a 24 hour policy. A 24 hour health insurance policy covers all illness and injuries irrespective of whether they occur on the job or after work. The reformed health insurance in our plan is designed to be a portable 24 hour policy. Of course this proposal assumes that all Worker’s Comp laws will stay the same. This use of a 24 hour policy will also provide incentives for the employee to return to work as soon as possible and reduce or eliminate the money wasted on sorting out Worker’s Comp claims from employer based claims. This proposal suggests that with the strong positive incentives and affordable premium prices of this plan, no mandates will be necessary to achieve universal access for all Americans.

Forcing insurance companies to provide insurance to the uninsurable through guaranteed issue and resorting to community rating will also drive up costs significantly. Failure to provide for true portability will also drive up costs. It will also contribute to higher premiums and overburden high risk pools making them less effective. Ironically, none of this is necessary. Portability means that people won’t lose their insurance whenever they change jobs. As people age their insurability risk increases. If they own their insurance policy throughout their lifetime with true portability they won’t have to lose their insurability.

The answer lies in redesigning not only our approach to health insurance but how we finance it and how we design the incentives with checks and balances to create an effective and efficient delivery system in a functional market.

Many Americans are uninsured simply because they can’t afford to purchase our very expensive health care insurance. When they become ill and finally end up in our hospital’s emergency rooms, the most expensive venue, they are farther along in their disease process requiring more care than if they sought care sooner. The hospital then charges the uninsured the most expensive price….pay master list price ……which of course they cannot pay. These unpaid hospital costs are shifted to everyone who is insured in the form of increased insurance premiums to the tune of 130 billion dollars a year, or roughly $900 per family, higher than it has to be just to pay for the cost of care for the uninsured. This amounts to a “hidden tax”. In addition, the unpaid costs of the un-insured are also cost shifted to the American taxpayer directly. In 2007 we paid 30 billion dollars in taxes to pay for this unpaid for care in the emergency rooms. This is in addition to lost revenues from under market payments from Medicare and Medicaid that is also cost shifted to the taxpayer at $160 billion a year and also used to increase private insurance premiums. But we also pay in increasing deductibles and co-pays and bankruptcy costs and cost-shifting to the American taxpayer and on and on and on. We are paying for this care in the most expensive and least efficient way not the least expensive way and most efficient way.

By creating access to insurance for every American through premium subsidy and improving the way we spread and mange risk we can save about half of the money that we now spend for health care but for which we receive little to no utility.

Critics of market based plans in health care point out that when patients are very sick or injured, they are in no condition to haggle price or shop around for a doctor to treat them. However, that is not how the market works in health care. The purpose of designing incentives with checks and balances is to create a professional atmosphere consistent with the way doctors have already been trained to function in order to provide the patient with the best quality care at the least cost. We must align the doctor’s financial incentives with those of the patient. Most physicians truly desire to and take pride in their ability to use their knowledge and skill to guide the patient through a complicated, oftentimes uncertain and inherently expensive health care system appropriately and cost effectively. Unfortunately, our current third party payment, procedure driven system with its over regulation and micro-management thwarts this desire and provides perverse incentives that degrade the physician’s professional relationship with his patient.

Medical treatment involves countless variables and options that must be taken into account, weighed, and summed up by the doctor's mind and subconscious. Your life depends on the private, inner core of the doctor's function: it depends on the complicated input that that he deals with, and how he processes that information in terms of the individual needs of each patient.

Just what does the physician have to deal with in our current system? It is more than just the objective medical facts. Today physician must also consider the : 'The diagnostic related group administrator [in effect, the hospital or HMO man trying to control costs] will object if I operate, but the malpractice attorney will see it as an extraordinary opportunity if I don’t. My professional rival, who heads the local PRO [Peer Review Organization], favors a CAT scan in these cases, and I can't afford to antagonize him, but the government who controls the certificate of need disagrees and they won't authorize a CAT scanner for our hospital. The FDA prohibits the drug I should be prescribing, even though it is widely used in Europe, and the IRS might not allow the patient a tax deduction for it. I can't get a specialist's advice because the latest Medicare rules prohibit a consultation with this diagnosis, and maybe I shouldn't even take this patient, he's very sick. Some doctors are manipulating their roster of patients, they accept only the healthiest ones, so their average costs are coming in lower than mine, and that makes me look bad when I am reviewed for my staff privileges. If I accept an uninsured patient , he won’t be able to afford the proper diagnostic tests and that increases my risk of being sued for missing a diagnosis. Perhaps I shouldn’t accept these patients.

Would you like your case to be treated in this manner by a doctor who takes into account your objective medical needs and the contradictory, incoherent demands of some ninety different state and Federal government agencies? Could you, trust this doctor to have your best interest at heart?

If you were a doctor could you comply with all of this conflict? Could you plan or work around or deal with such arcane and opaque regulation? How could you possibly avoid it? These government agencies are real and are rapidly gaining total power over the doctor, his profession and his future viability in medicine. They have already systematically destroyed professionalism with growing regulation and bureaucratic control.

In this kind of frightening and dreadful world, for the wretched doctor, resistance and survival is futile; no one will be able to decide by any rational means what to do in any particular case. All a doctor can do is try to survive the best he can. A doctor either obeys the most powerful authority—or he tries to sneak by unnoticed, illegally trying to practice some good health care occasionally or, as so many are doing now, he simply gives up and quits the profession."

Every physician has perverse incentives thrust on him to provide procedure driven, fragmented care to his patients involving as much expensive, high tech diagnostic and therapeutic procedures as possible. He is forced to see too many patients every day just to bring in enough money to break even with expenses. He has to hire at least one half dozen office staff to shuffle the increasing paperwork in filing and re-filing claims with the insurance plans. This is not why most doctors chose medicine as a profession. It steals too much time from patient care. The bureaucrats have taken over and are out of control. This has to stop.

In the American Health Care Plan, each physician will be competing on the basis of how skilled and knowledgeable he is, so that with time each practicing physician will improve. In our market design we introduce competition by having the doctor manage the patient’s care given the budget represented by the lump sum insurance payment by giving the patient different options. It will not be necessary for the patient to haggle over price, once he has selected the doctor of his choice and with whom he feels is working in his best interest. The physician will provide the patient/guardian with several price options within the context of appropriate care with enough information so that the patient/guardian can make an informed choice to achieve the value and quality of care that is appropriate to their problem. Only the doctor knows if the marginal price difference of an option is justified by the marginal difference in quality or value. These price options represent a “total care package” which represents all the care the patient needs for that particular insurable event. This includes physician, nursing care; hospital care; pharmaceuticals; any surgery and post surgical care; and any rehabilitation. This design provides price transparency to the patient. In this plan the insurance payment is transferred into the patient’s reformed asset medical savings account. The patient then pays directly for all aspects of his care from his health care asset savings account via an electronic debit card usable only for health care.

This plan balances the physician’s selling expensive procedures against the patient’s choice to spend money in his asset/health savings account that exceeds the insurance lump sum payment, for which he may have other use in the future. The unique element of this design is that it creates demand side incentives that balance protection of the patient from unforeseen medical care expenditures with stimulating cost conscious consumer choice. On the supply side the need for third party managed and regulated care is eliminated and, with it, all the distortions and cost inflation it has created in the current healthcare market.

[1] INSTITUTE OF MEDICINE, NATIONAL ACADEMIES PRESS, TO ERR IS HUMAN: BUILDING A SAFER HEALTH SYSTEM 26

(2000b).

[2] Organization for Economic Co-operation and Development, OECD Health Data 2004, Table 9: Total expenditure on health, Per capita U.S (June 2004). The United States spends an average of $5267 per person per year. This is 50% more than the next highest spender, Switzerland, which spends $3445 per person on health care. Switzerland also has higher life expectancies and lower infant mortality rates than the U.S., which are two key factors in evaluating the success of a country’s health care system.